December 18, 2016 1:00 am JST
Company in focus

World's No. 1 bike tycoon passes his revolutionary torch to the next generation

Taiwan's Giant Manufacturing seeks rejuvenation amid stagnant growth and a rising challenge from China

CHENG TING-FANG, Nikkei staff writer

Young Liu, left, will become Giant's chief executive on Jan. 1, with Bonnie Tu taking the chairman's seat. (Photo by Cheng Ting-Fang)

TAICHUNG, Taiwan -- King Liu, the 82-year-old founder and chairman of the world's largest bicycle maker, Giant Manufacturing, still bikes some 30 kilometers twice a week from his residence in downtown Taichung in central Taiwan to the company's headquarters in the coastal town of Dajia.

Liu has kept healthy by promoting cycling culture and completing bike challenges that even some people less than half his age are not able to accomplish.

At 73, Liu bicycled 966 kilometers around Taiwan the first time in his life. At 75, he led teams that cycled 1,668 kilometers from Beijing to Shanghai, and two years ago he toured 264 kilometers on bikes around Seto Naikai in western Japan.

To celebrate his 80th birthday, Liu again circled Taiwan, spending 12 days on a nearly 1,000-kilometer journey.

But the most important item on Liu's to-do list this year is guiding a new generation take over his cycling empire. 

On Dec. 16, Liu tendered his resignation together with the company's 67-year-old chief executive, Tony Lo, after both men worked over the last four decades to transform a tiny contract manufacturer into the world's leading cycling brand that boasts more than 12,000 dealers across 80 countries. 

"It's time for me to truly step down and let the younger generation really make their own decisions and run the company," Liu, who turned Giant into a synonym for premium sports bicycle and put Taiwan's bike industry on the world map, told the Nikkei Asian Review.

Liu is passing the baton to his niece Bonnie Tu, 67, and his only son, Young Liu, 57. Effective Jan. 1, Tu, the company's chief financial officer and executive vice president, will become chairman, and Liu, the chief operating officer, will take over as chief executive.

"I have run this company for 44 years, and that's a very long time. All the employees are still doing things according to my instructions and directions, but this could eventually hinder their creativity and kill their entrepreneurship to try new things," said Liu.

Investors are closely watching the changes. Shares of Giant tumbled 4.5% in the week ending Dec. 16 to close at 188.50 New Taiwan dollars, after the company sent an invitation to media on Dec. 12 for a press conference to announce its new leaders.

Joseph P.H. Fan, a professor at the Chinese University of Hong Kong and an expert on family-run businesses, said that even though there may be sufficient advance preparations "the weakest time period of any given family business is transition from the old to new generation."

Legendary leader 

Born in 1934 into a business family, Liu dropped out of high school and tried running various businesses, including wood and screw factories, and freight and trade companies, and he even dabbled in eel farming before hearing from friends about opportunities to make bicycles for overseas companies. 

Giant began in 1972 as one of the faceless factories striving to gain orders to assemble two-wheelers, but it encountered a bumpy ride in its first few years, as the "made in Taiwan" label had a reputation of being slapped on products of low quality.

Liu eventually overcame that perception by persuading local component suppliers to stick to an internationally accepted quality standard. That also marked his first move to overhaul Taiwan's bike industry.

Soon after founding Giant, Liu met Lo, his eventual business partner who had just graduated from university and conducted a thorough market survey on Taiwan's bike industry for his first job.

In 1974, Lo, fluent in English and 15 years younger than Liu, became the future tycoon's right-hand man and Giant's best international ambassador.

The company gradually expanded its operations thanks to orders from Schwinn, an American bike brand that eventually contributed up to 75% of Giant's sales, but Liu knew that the contract manufacturing business would not last forever.

Indeed, Giant was plunged into crisis when Schwinn abandoned the partnership in the 1980s and turned to Chinese contract manufacturers. That prompted Liu to take Giant global, and he began marketing bicycles with its own Giant brand name.

In 1986, Giant set up its first overseas subsidiary, in the Netherlands, and soon pushed into the U.S., Germany, the U.K., France, Japan and China in the following years. To be more competitive, the company also began developing advanced material for making premium bicycles.

In the late 1980s, Giant had been the first in the industry to introduce carbon-fiber bicycles, which are much lighter than traditional steel-made bikes, to the mass market, at a time when carbon-fiber was used only in very few handcraft models. The introduction of a new type of bicycle soon became a hit in the road bike-racing circuit and made Giant a household name for sports bikes in the 1990s.

"Liu is someone who always thinks ahead of the times," Robert Wu, chairman of Taiwan-based KMC Kuei Meng International, the world's largest bicycle chain provider, said in an interview. "It's his pioneering efforts that Taiwan can preserve a high-quality and complete cluster of bike suppliers. Without him, our company could never do this well."

In the early 2000s, Liu made a notable contribution to Taiwan's bike industry. At the time, many bike makers and parts suppliers, facing cost concerns and fierce competition from Chinese rivals, were relocating to China or Southeast Asia. The industry hollowed out and was hit hard by a brain drain.

To boost the industry, Liu in 2002 formed the A-Team, a business alliance that aimed to share marketing and manufacturing know-how and unite Taiwanese suppliers to focus more on innovation rather than price-cutting.

Liu visited his company's longtime rival, Merida Industry, and won its cooperation. He further persuaded many key suppliers to participate in the alliance.

The group eventually included several of the world's leading bike component vendors, such as KMC International, VP Components, the world's top bike pedal maker, and Kenda Rubber Industrial, the largest provider of bike tires.  

"King wants the whole supply chain to grow together rather than working only for Giant's sole benefits, and that's why everyone respects him so much in the bike industry," said Victor Lin, chairman of VP Components in an interview with the Nikkei Asian Review.

"We admire his famous fish-farming theory: If everyone only wants to catch fish but no one want to feed the fish, the fish will soon die out -- and he practices what he preaches," Lin said.

With Liu's efforts, Taiwanese bike and component makers have thrived. The average unit price for bikes that Taiwan exported grew from roughly $110 in the 2000 to more than $473 in 2015, according to Taiwan Bicycle Association. 

This compares with an average unit price of $78 for bikes China exported in 2015, according to the Taiwan Institute of Economic Research. 

Giant still insists on manufacturing its most advanced and premium products -- with a price tag that can be as high as $10,000 -- in Taiwan, even though it produces most of its mid-range bikes in China.

Giant makes around six million bikes a year -- primarily at factories in China -- with most of its premium bicycles, about one million, made in Taiwan, and  about 400,000 in the Netherlands.

Giant also promotes cycling culture and the concept of healthy living. It runs travel agencies for global bike tours, and it also operates Ubike, a public bike rental service in seven cities in Taiwan and China.

Under the leadership of Liu and Lo, Giant's revenue advanced nearly seven-fold since it went public in 1994, to NT$60.41 billion ($1.89 billion) in 2015. The company's net income of NT$3.84 billion in 2015 soared 14 times during the same period.

China challenge

Liu's decision to hand over the reins comes at a pivotal moment for the company. After years of posting strong sales growth, the company this year could see its first slide in revenue since 2009 due to China's slowing economy.

For the first three quarters of 2016, the company's net profit fell nearly 20% year-over-year to NT$2.4 billion, while its revenue declined 6.5% to NT$44.23 billion.

Giant currently generates more than 70% of its revenue from Europe, North America and China.

Revenue from selling bikes in China fell to 21% of total sales for the three months ending in September, down from 24% and 27% in 2015 and 2014, respectively. 

"It has been two sluggish years for the bike industry since the first quarter in 2015, as the whole industry was hit hard by subdued global economic growth, especially the substantial slowdown in China," said Peggy Shih, an analyst at Yuanta Investment Consulting in Taipei.

Smaller Chinese bike makers, such as Shanghai Phoenix Enterprise and Zhonglu, have started to put pressure on Giant, as they have moved up from producing low-end bicycles to some mid-range models, according to Johnson Wang, an analyst the Taiwan Institute of Economic Research.

"The competition could continue to intensify in a slowing market, and a lot of smaller bike makers will even go out of business after the downturn," Wang said.

Transition is never easy

Liu selected family members, also company veterans, to succeed him, a common practice in Taiwan's non-tech sector.

At a press conference on Dec. 16, Tu, the incoming chairman, likened the new management lineup to a Tour de France cycling team, in which every member plays an important role. "Our company's new leadership will shift from the strong and centralized management over the past four decades to a more professional teamwork style."

The company has placed an emphasis on reforming its decision-making process so that it can quickly adapt to changes in the global market.

At the same press conference, Young Liu, the new chief executive, said that he felt both encouragement and pressure as the son of an iconic business leader and acknowledged the responsibility on his shoulders. But he pledged to bring this Giant to the next level -- to be a service-oriented company that prospers with both brick-and-mortar stores and e-commerce platforms.

"It definitely is not an easy task to take over the bike empire, especially when it is extremely successful and when the transition comes at a time when there are so many uncertainties," he said.

Tu, who joined the company as King Liu's special assistant in 1978, has long helped supervise the company's financials, investments, and risk management, and she successfully brought the company public in 1994.

In 2008, Tu launched Liv, a product line that was dedicated as the first female bicycle brand with more colorful and design choices. Liv has become one of Giant's key growth drivers and contributed to 6% of the company's bike sales in 2015. Tu's mother, Tu Liu Yue Qiao, is King Liu's sister and one of Giant's early investors.

Young Liu joined the company as a quality assurance specialist in 1990 and immersed himself into every detail of bicycle manufacturing. He helped bring Giant to China in 1992 and has since propelled the company to explosive growth in the country. Giant has been the top brand in China for the past five years, according to the Taiwan Institute of Economic Research. 

King Liu in the interview reflected on the reasons he and Lo are retiring, saying it will give the company a fresh start.

"What we have accomplished so far is only the first step for Giant to become visible all over the world," he said. "My ultimate hope is that Giant can be a company that can last for centuries and continue to keep the entrepreneurship spirits as it moves forward."

Nikkei staff writers Debby Wu and Chien Chia-Hung in Taipei, deputy editor Kenji Kawase in Hong Kong contributed to this report. 

Asia300

Giant Manufacturing Co., Ltd.

Taiwan

Market(Ticker): TAI(9921)
Sector:
Industry:
Consumer Durables
Recreational Products
Market cap(USD): 2,196.65M
Shares: 375.06M

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